Banks’ Reserve-Compliant Loans Rising

Loans of banks as alternative compliance to the reserve requirement (RR) rose 11.22% to P301.3 billion as of mid-February compared to P270.9 billion from the same period of last year.

Photo Insert: As part of the pandemic response, the central bank allowed banks to use loans to MSMEs and large enterprises that are not affiliated with conglomerates as alternative compliance with the RR rules.

The RR-compliant loans are part of the pandemic-related relief measures implemented by Bangko Sentral ng Pilipinas since April 2020.

It was supposed to expire on Dec. 30 but the BSP decided to extend the reprieve until June 30 this year to give micro, small, and medium enterprises (MSMEs) and select large enterprises more funding to recover from the COVID crisis.

Of the P301.3 billion, P235.9 billion are loans to MSMEs while P65.4 billion are borrowed by eligible large enterprises. This was higher compared to the same period in 2022 of P205.7 billion for MSME loans and P65.2 billion for big companies.

The aggregate limit for MSME loans is P300 billion and P425 billion for large enterprises. The MSME loans accounted for 14.2 percent of the total required reserves for the covered reserve week while loans to large enterprises accounted for 3.9 percent.

As part of the pandemic response, the central bank allowed banks to use loans to MSMEs and large enterprises that are not affiliated with conglomerates as alternative compliance with the RR rules.

This was the third time that the BSP RR-compliant loans as relief measures have been extended by the Monetary Board. Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP which they cannot lend out.

Meanwhile, with the continued recovery in the economy, the BSP has begun to remove some of the relief measures implemented during the COVID crisis except for those that encourage lending to MSMEs.

Aside from the extension of RR-compliant loans, the other relief measure that was extended until June 30 this year was the reduced credit risk weight of loans granted to MSMEs.

The BSP effectively reduced to 50 percent from 75 percent the credit risk weight of MSME loans for diversified MSME portfolios with at least 500 borrowers over a number of industries, and 100 percent for non-diversified MSME portfolios.

The regulatory capital treatment of exposures to MSMEs includes the temporary reduction in the credit risk weights of loans granted to MSMEs that are current in status, and the assignment of a lower risk weight for MSME exposures that are covered by guarantees.

The BSP has also assigned a zero percent risk weight for MSME loans that are covered by guarantees such as by the Philippine Guarantee Corporation, Agricultural Guarantee Fund Pool and the Agricultural Credit Policy Council.

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